Oman’s Islamic banking sector has reached a significant milestone following the Central Bank of Oman’s recent regulatory reforms aimed at strengthening its institutional framework. Since the introduction of Islamic finance in 2012, the sector has grown steadily, and the latest changes mark a transition from Islamic banking windows within conventional banks to fully independent Islamic banks.
Under the new provisions set forth in the Banking Law issued by Royal Decree No. 2/2025, conventional banks operating Islamic banking windows are now required to convert these operations into standalone subsidiaries. This legal and operational separation mandates independent management of assets, financial reporting, governance, and information technology systems for Islamic banking activities, ensuring full autonomy from conventional counterparts.
The regulatory overhaul is designed to enhance transparency and improve Sharia governance, thereby fostering greater public confidence and strengthening supervisory oversight. It also aims to increase operational efficiency and boost the long-term competitiveness of Islamic banking in Oman’s financial landscape.
Islamic banking offers financial services compliant with Islamic law, providing alternatives for customers seeking to align their banking with religious principles. Before Islamic finance was introduced, many Omanis avoided traditional banking due to the lack of Sharia-compliant products. Today, Islamic banks present a diverse portfolio of financing solutions that cater to individuals and businesses while adhering to Islamic principles.
The sector now plays an important role in Oman’s economy by funding small and medium enterprises, industrial ventures, commercial operations, and infrastructure projects. Since the first sovereign Islamic sukuk issuance in 2015, Islamic bonds have become a notable source of financing for government and corporate bodies.
According to Central Bank of Oman data, Islamic banking assets reached approximately RO 9.16 billion by the end of 2025, accounting for nearly 20 percent of the nation’s total banking assets. The sector operates around one hundred branches nationwide and has evolved into a key pillar of the country’s financial system.
The expansion of Islamic banking has also intensified competition in the banking sector. Both Islamic and conventional banks are adopting innovations such as digital transformation and improved customer service to better meet diverse consumer needs. While religious observance remains a primary factor for many customers, others appreciate the sector’s transparent financing structures, strict regulatory oversight, and clearly defined contractual arrangements. A growing number of expatriates also utilize Islamic banking products when they offer competitive pricing and efficient service delivery.
This conversion from Islamic windows to independent Islamic banks signals the sector’s maturation and readiness for a new era of development. With enhanced governance structures and comprehensive regulation, Islamic banking is expected to play an increasingly significant role in financing strategic projects under Oman Vision 2040. Alongside conventional institutions, Islamic banks are positioned to contribute to the resilience, diversification, and global competitiveness of Oman’s financial system in the coming years.